Covid 19 has suppressed the financial markets this year which has resulted in record low mortgage rates. Many homeowners are calling to refinance their mortgage into a lower rate and lock-in for the foreseeable future. Some are also wanting to secure a longer fixed term in fear that rates are going to spike up in the near future.
The good news is that we are not anticipating fixed or variable rates to increase anytime soon. In fact, the Bank of Canada recently suggested that we may not see an increase from them until 2023.
What Should You Do?
Existing Mortgage Holders
If you are currently in a fixed rate mortgage product, it would be wise to have an independent mortgage advisor review your latest mortgage statement at no charge. A quick review could potentially save you thousands of dollars in interest costs.
If you are in a variable rate mortgage, you may want to consider leaving the mortgage “as is”. Chances are with prime rate being 2.45%, you likely have one of the lowest mortgage rates available at this time. Since there is no upward pressure on interest rates, there is no need to lock into a fixed term right away.
Right now is an excellent time to borrow money as we are seeing some of the lowest rates in Canadian history. The net benefits being low interest costs, low monthly payments, and ability to pay down the loan balance quicker.
It’s important to note that the drop in rates have not necessarily made it easier to qualify for a mortgage. The stress test is still in place which means that lenders qualify you 2 percentage points above your contract rate OR 4.79%, whichever is greater. For example, if your mortgage rate is 2%, you still need to qualify as if it were 4.79%. The qualifying rate of 4.79% is as of today and may change at anytime.
The most common reason for refinancing today is for debt consolidation. For many, debts levels increased since the start of Covid in March 2020when we saw reduced working hours and temporary lay offs. Accessing home equity to pay off outstanding credit card and line of credit balances may be helpful to get back on track.
Even Alternative and Private Mortgage interest rates have dropped. Depending on the type of mortgage required, non bank mortgages are starting at 3%. This is just 1% above your traditional bank which is fantastic if you need help but have bruised credit or non-traditional income.
Making A Decision
While we have expressed good reasons to consider borrowing or making changes to your mortgage, it doesn’t mean that you should. There are usually costs that come with restructuring your mortgage and can include mortgage penalties, legal costs, and home appraisals. Every case is different and requires careful consideration with your Mortgage Advisor. Please contact us to discuss by phone and we will be happy to help you determine when and if any adjustments are needed.